Too much debt? Here’s how to get out of debt on a low incomeFeb 09, 2016
The Parliamentary Budget Office’s (PBO’s) latest report shows that Canadians are carrying too much debt, with a household-debt-to-income ratio of 171 per cent. This means that for every dollar earned, the average Canadian owes $1.71 in debt—a number much higher than households in the other G7 countries. And with the middle 20 per cent of single Canadians earning from $23 to $37 thousand per year, many might be dealing with debt loads nearly twice their take-home pay. Lowering debt should be on the minds of all Canadians, especially with interest rates near an all-time low. But what can you do when your debt exceeds your income?
Build your budgeting basics
Anyone on a low income, or who is struggling with too much debt, would be best served by keeping a monthly budget. Your budget should include all of your monthly expenses—food, rent, car loans, debt payments. You would also enter your monthly income to see whether you’re coming up short, or if there’s any money left over at the end of the month. The Financial Consumer Agency of Canada (FCAC) has a great budget calculator that can help you with this.
When building your budget, you might find that there are some expenses you can cut back on, or even eliminate, to help you get out of debt. Restaurant and entertainment spending can provide a much-needed night out, but if you’re carrying too much debt, consider putting some of that money toward your monthly payments instead.
How to earn extra income
The most obvious ways to make more money, like changing jobs or asking for a raise, aren’t always feasible, especially considering the economic climate in certain parts of the country. However, there are several “side hustles” that can help you earn additional income in your spare time. For instance, you could get into:
- Freelancing: If you’re skilled at writing or design, there are several places you can find work online. Stating that you’re looking for freelance opportunities on LinkedIn might be a good start.
- Blogging: If you’re an expert at something, it’s possible to make money from blogging. Several financial bloggers have found that starting a blog to share their stories eventually turned into a full-time career. But note that it takes a lot of effort to make money blogging—you can’t simply start writing online and expect to start earning.
- Tutoring: A more cost-effective way to make use of your skills could be to teach people in your local community. Whether it’s helping high school students with math homework or teaching adults how to write code, you can probably find people who will pay to learn new skills.
- Join the sharing economy: There are all sorts of apps that can help you make some extra money. Whether it’s driving, cooking or renting out your spare bedroom…you can even get paid to run errands!
Get out of debt sooner with a low interest rate
Interest charges are a nuisance. When you have too much debt, they just keep piling on, month after month—especially if you’re not able to make much more than the minimum payment. Fortunately, there are multiple debt consolidation options that can lower, or even freeze, the interest you’d be paying on your debt. A debt consolidation loan can combine multiple debts into one monthly payment, and you’ll most likely end up with a much lower interest rate, especially if you shop around.
A consumer proposal can also help you get out of debt, even on a low income. A Trustee in Bankruptcy files a proposal with your creditors that will freeze interest charges, stop any legal action, and often take a big bite out of your debt, so that you’ll only have to repay a portion of what you owed. If you have too much debt, a Trustee will be able to explain all your options and find the solution that works best for you, regardless of your financial situation.
How much debt is too much? Join the conversation on Twitter using the hashtags #BDOdebthelp #LetsTalkDebt